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When is interest on partners' capital allowed in a partnership?

Answer and explanation

Correct answer: Only when the partnership deed or agreement provides for it

Interest on capital is not automatically payable. It is allowed only if the partnership deed or a written agreement expressly provides for it, usually specifying the rate and basis of calculation; such interest is appropriated before sharing remaining profits. If the deed is silent, partners cannot claim it without mutual agreement. The closest distractor (Always without condition) is incorrect because payment depends on the deed. Exam tip: always check the partnership deed and the order of appropriation for clauses like 'interest on capital'.

Related tags

Interest On CapitalPartnership DeedProfit DistributionOrder Of AppropriationPartnership AccountsPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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